DRM music goldrush is a race for losers – mp3.com founder

While Apple leads the lemmings

Apple is leading a race of lemmings into the zero-profit business of closed music downloads, says the founder of MP3.com, Michael Robertson.

"It seems kind of crazy to me, the economics don't make sense," Robertson told us Thursday. "Why are all these guys like Microsoft and Wal-Mart rushing into a business where the industry leader says 'we cannot make money with the contracts that we have'?"

"This is a race where the winner gets shot in the head."

And William Tell-style, Apple volunteered to be the first into the firing range. Canny Apple has had to swallow the pigopolists royalty fees, and DRM restrictions, but it thinks it has a business because its closed business model sees downstream profits from iPods sales.

Robertson started MP3.com in 1998 and after a barrage of lawsuits, sold it to Vivendi Universal in 2001. Last week, after a night on the tiles, Vivendi sold the mp3.com domain name to CNET, leaving the million-song archive to the vultures. (Robertson is striving to find a host for this, and we shall have more news of this later today).

The computer industry traditionally opposed the copyright cartel, but Apple was the first snitch to cut a deal with the pigopolists. Was this wise, we wondered?

"If one company got a huge market share - say 50 per cent or higher - they could negotiate better royalty rates," notes Robertson. "But they forget something. The music industry is tens of thousands of publishers and just five major record labels. Getting all of them to agree is a real tough thing to accomplish even if you're market leader."

Without any Beatles songs, and with only one Roxy Music track on its music kiosk, Apple is currently in a position of begging the big five for content, rather than dictating the terms of the deal. It's the rebel without a clue. Can it turn the tables?

Well, there are several factors that ought to halt the wannabee players in the DRM goldrush in their tracks. A compulsory licensing scheme (which is now backed by the libertarian rights group the EFF) is one. But Robertson points to another: the decision by courts to permit KaZaA peer to peer-style sharing.

"It's the wild card," says Robertson. "KaZaA has been ruled legal, so why pay for restricted music?" he asks.

"Apple really haven't sold that much music. And they've received millions of dollars in free advertising. Don't get me wrong, Steve Jobs is a smart guy who knows the economics. He's clearly betting that he can subsidize it with profits from iPods, or get enough scale to begin renovating the royalty deals."

"It's a real dilemma for me," he says, echoing the thoughts of millions of peer to peer music lovers. "If I 'steal' music from KaZaA I get all this music, but if I pay I have all these restrictions."

If people can get unrestricted music for free, why would they need to go to a DRM store to get a low-quality version with all the strings attached, Robertson wonders. KaZaA, and future P2P technologies make file sharing so simple and fun.

"People will use P2P and people will buy CDs," he predicts.

With so many people - other than the DRM gold rush entrepreneurs - accepting such constraints, accepting that people will always want to share music, and technology will always outwit DRM controls - we're left with the ethical problem of how to compensate the artists.

(Which is why there is such momentum behind compulsory licenses right now. Many people accept that stopping music-sharing is a lost battle, so our better minds are thinking of schemes to use the technology to compensate artists fairly).

Robertson doesn't agree with the idea of a levy, but agrees "there needs to be a radical change here".

And pundits should be wary of Apple's early apparent success, he warns. "I'm not sure if an Apple user is representive sample of the population," he says.

True enough.

Paying for restricted versions of songs they could have got unrestricted and for free has been the real litmus test for Apple loyalists. It's a hurdle they've leaped over with glee. But how many will follow them? Has Steve Jobs mistakenly extrapolated cult behavior and assumed the rest of the world follows shares these values, and follows these assumptions?

That's not what we hear from you.

It's rather tasteless to remind you that this week is the twenty-fifth anniversary of the Jonestown Massacre - where a charismatic San Franciscan decamped to the jungle and persuaded almost a thousand followers to commit suicide, by drinking toxic fruit juice. It gave birth to a lasting idiom: "have you drunk the Kool-Aid?"